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Questions raised after Kodak's stock jump

Deal to help make more generic drugs could turn into regulatory headache

U.S. Sen. Elizabeth Warren wants the SEC to explore if Kodak Pharmaceuticals being in line for a large government loan i
U.S. Sen. Elizabeth Warren wants the SEC to explore if Kodak Pharmaceuticals being in line for a large government loan is an insider trading. (Getty Images/TNS)

Eastman Kodak’s potentially lucrative agreement to help the U.S. government make more generic drugs domestically is threatening to turn into a regulatory headache for the fallen photography giant.

Kodak’s depressed stock price surged last week before the company announced its plans to work with President Donald Trump’s administration in exchange for a $765 million loan.

That prompted Sen. Elizabeth Warren, D.-Mass., to send a Monday letter asking the Securities and Exchange Commission to investigate whether insider trading laws had been broken.

The SEC is now in the early stages of a probe, according to a report published Tuesday by the Wall Street Journal. The newspaper cited unidentified people familiar with the matter.

The SEC declined to comment on the report.

Kodak said Tuesday that the Rochester, N.Y., company intends to cooperate with any potential inquiries, without saying whether it has been contacted by the SEC.

The company’s stock soared on the July 28 news about the $765 million loan from the federal government to help Kodak make factory changes necessary to make pharmaceutical ingredients in short supply in the United States.

Its shares rocketed from around $2 to as high as $60 before some of its former debt was converted into stock as part of a complex arrangement.

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The conversion resulted in Kodak issuing nearly 30 million additional shares, undercutting the value of the stock already outstanding.

Any investigation is likely to focus in an abrupt rally and trading frenzy in Kodak’s stock before the company and the Trump administration made their announcement.

The rally may have triggered by some of the news being shared online on Twitter and websites by at least two reporters in Rochester and two television stations before the official release of the information.

In its Tuesday statement, Kodak said it didn’t intend for the news to be shared by the media in advance.

Although Kodak became world famous for its inroads in photography before digital technology decimated the market for film, it also has a lesser-known pharmaceutical division.

The government loan agreement, which hasn’t been finalized, is supposed to used to help expand and renovate existing plants in Rochester and St. Paul, Minn.

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